In fact the three best funds in the IA Global sector last year are all specialist healthcare funds. Hilary Natoff’s €810m Fidelity Global Health Care, John Bowler’s £200m Schroder Global Healthcare and the £145m L&G Global Health & Pharmaceutical Index funds made 28.71 per cent, 26.87 per cent and 26.32 per cent respectively. This meant they beat the sector average by more than 20 percentage points.
These funds have made strong consistent returns over the longer term too, a feat almost unmatched in the Investment Association universe.
Looking at annualised returns over the past 10 full years on FE Analytics, the L&G passive fund has never lost money in a full year while Schroder Global Healthcare had only one down year – a fall of 0.65 per cent in 2006. The Fidelity Global Health Care lost money in two years – 2011 when it lost 0.36 per cent and 2006 when it was down 6.31 per cent.
This totals up to sturdy overall returns of over 200 per cent since the beginning of 2005 for each fund, thereby more than tripling investors’ cash.
Performance of funds over 10yrs
Source: FE Analytics
There are three other specialist healthcare funds, all of which sit in the IA Specialist sector: Polar Capital Healthcare Opportunities, AXA Framlington Health and Invesco Global Health Care. They have all had very strong returns in recent years, making money year-in year-out.
The AXA Framlington Health fund had a change of management in the middle of 2014 and is now managed by Mark Hargraves, whereas Polar Capital Healthcare fund is co-managed by Dan Mahony and Gareth Powell. Invesco Global Healthcare is headed up by Derek Taner.
The five FE Crown-rated Polar Capital Healthcare Opportunities is newest but has proven itself a strong player in the healthcare space since its launch in April 2009. The fund aims to achieve capital gains by investing in healthcare stocks, mainly opting for global blue chips in the space.
Among the fund’s top holdings are European pharmaceutical giants Roche and Merck as well as smaller players in the US such as Kythera Biopharmaceuticals.
Since launch in April 2009, the fund is up 238.4 per cent. AXA Framlington Healthcare has gained 202.93 per cent and Invesco Global Healthcare is up 151.04 per cent.
Performance of funds and index since April 2009
Source: FE Analytics
While specialist funds such as these are not very widely held, many very popular funds across the Investment Association’s largest sectors such as the IA UK All Companies and IA UK Equity Income sectors have a heavy tilting towards healthcare and pharmaceuticals.
Out of the 271 funds in the IA UK All Companies sector 61 funds have more than 10 per cent in healthcare with five having more than 20 per cent.
These include the £12.5bn Invesco Perpetual High Income and £6.6bn Invesco Perpetual Income funds, headed by FE Alpha Manager Mark Barnett, which both have around a quarter of their respective portfolios in the sector. In the IA UK Equity Income sector 30 out of the 90 funds have more than 10 per cent.
FE Alpha Manager Neil Woodford, who heads up the £4.2bn CF Woodford Equity Income fund, has the largest weighting in the sector. Woodford has made healthcare a long-term theme over the past decade – during which time he worked with Barnett at Invesco Perpetual – with a current weighting of about a third of assets in names such as AstraZeneca, GlaxoSmithKline and Roche.
AstraZeneca is the fund’s largest holding with a weighting of 7.36 per cent, GlaxoSmithKline the second at 6.36 per cent and Roche is the tenth biggest position at 3.01 per cent.
However, Invesco Perpetual’s European equities team have warned healthcare was one of the defensive sectors that benefited in 2014 from a broader risk-off period where investors piled, which has led to valuations becoming “stretched”.
“Pharmaceuticals are less compelling than they once were given the significant re-rating of the past five years and although some individual companies remain attractive; our portfolios are now generally underweight,” the team said.
But Linden Thomson, manager of the AXA Framlington Biotech fund, says demographic factors, as well as ongoing innovation, will continue to drive the market.
“The long-term demographic tailwinds, such as an ageing global populations and increasing obesity, continue to underpin robust demand for healthcare services and products.”
Andy Parsons, head of investment research at The Share Centre, points out healthcare was a theme that dominated 2014, with AXA Framlington Healthcare fund and Polar Capital Healthcare fund doing particular well.
“We believe that the advances in medical and healthcare technology will continue at a rapid pace due to ageing populations, obesity and the demand and rising wealth of the emerging economies. Business models are likely to become more focussed on specialist niche areas either directly or through partnerships and acquisitions,” Parsons said.
“Revolutionary developments within immunodiagnostics are aiding drug development and treatments that harness the body’s own immune system. These developments will undoubtedly become the norm.”
